What to do about a sex offender/crazy man when they say he is to incompetent to be registered ?

my neighbors son has been to the nutt house i know of three different time two of witch were from sexual acts. the last time he was sent was bc he cornered my friends wife in her van in front of my house and exposed himself to her.. ok she tried to take action but was told he could not be registered as a sex offend bc of his mental status he was to incompetent......we both have small children from ages 3 to 18....what can we do about this man.....apparently local law wont do anything here but they wont to make a big deal about another man who is a sex offender ( and let me add that the reason he is a sex offender is bc some girls 16 to 18 years of age gave him and other guys pics of there top half for beer a long time ago and he was not but 20 something himself, there were many ppl involved but he took the full blame to keep others out of jail also) but they just let this man run loose without any restriction bc they say he is mental..let me give some examples..the cops were called, when they arrived he had locked himself in the bathroom and was playing in his own fecal matter he had smeared all over the room...... he stood in front of his house for 6 hours one day staring at the ground swaying back a forth..to me ya that is crazy, but he is well enough to know that when he slapped his thing against my friends window he took off running, he was well enough to steal a truck from the nutt house and drive it to his house.... my friends and i just wont are children safe, but dont feel they will be unless something is done...what can we do... any info would be GREATLY appreciated